A recent NLJ story, “First Circuit Tosses $30 Million Fee Award Volkswagen Case,” reports that a federal appeals court threw out a Boston federal judge’s $30 million attorney fee award for plaintiffs’ lawyers in multidistrict litigation over oil-sludge damage to Volkswagen cars.  In a unanimous ruling on July 27, the U.S. District Court of Appeals for the First Circuit vacated U.S. District Judge Joseph Tauro’s March 2011 fee award, plus nearly $1.2 million in costs.  The First Circuit panel ruled that Tauro erroneously based the fee award on federal law.  The court remanded Volkswagen Group of America Inc. v. Petel J. McNulty Law Firm (pdf) so that the fees could be calculated based on Massachusetts law.

The underlying lawsuit claimed that defects caused the 1.8-liter turbo engines in some Volkswagen Passet and Audi Cabriolet model were susceptible to damaging engine sludge.  The settlement provided for free oil changes and extended warranties.  A special master valued the deal at about $223 million for a potential class of about 480,000 car owners.  On appeal, Volkswagen argued that the plaintiffs’ attorney fees should have been about $7.7 million.  The class counsel sought $37.5 million in fees and about $1.8 million in costs.

The First Circuit ruling cited U.S. Supreme Court precedents to conclude that state law governs the interpretation of settlement agreements.  Chief Judge Sandra Lynch wrote the opinion.  “The basis for the award here is the agreement itself, a contract under state law, and not federal law.  The fact that attorneys’ fees are provided for by the settlement agreement is one of several reasons why there is no basis to resort to these federal equitable doctrines,” Lynch wrote.

Under Massachusetts law, Lynch continued, a trial can use either the lodestar approach or a multifactor analysis.  The latter weights factors including the attorney’s ability and reputation; the matter’s importance; the time spent; fees usually charged for similar services by other lawyers in the area; the value of the property affected; and the results.  If the lower court opts for the lodestar approach, it should adopt $7.7 million as the bases figure “given the absence of any direct challenge to the number,” Lynch wrote.  That number does not include work by plaintiffs’ attorneys who were not class counsel, work performed after the district court’s fee award and any possible contingency enhancement.

NALFA also reported on this case in "Volkswagen Challenges Fee Calculation in $30M Attorney Fee Award"